We recently published a list of 10 Best Cash App Stocks To Buy According to Hedge Funds. In this article, we are going to take a look at where PayPal Holdings, Inc. (NASDAQ:PYPL) stands against other best cash app stocks to buy according to hedge funds.
The mobile payment service Cash App has grown significantly throughout the years, and in 2022 it was valued at $138 billion, up from $40 billion in 2020. Although its earnings increased to $2.95 billion, showing consistent yearly growth since 2018, its revenue decreased to $10.6 billion in 2022 from $12.3 billion in 2021, despite this remarkable valuation. Cash App’s user base grew by 7 million from 2021 to 51 million in 2022, due to its user-friendly interface and array of financial services, which include peer-to-peer payments, Bitcoin investments, and cash card features. The four U.S. states of Texas, California, Florida, and New York together account for 48.75% of Cash App’s user base, with over half of its customers concentrated in these states. As of 2020, there were just 10,000 active Android users in the United Kingdom, and its market share was less than 0.05%. In 2022, the platform handled more than 528 million transactions, demonstrating its increasing use. Cash App is positioned as a major participant in the digital payment ecosystem, particularly in the U.S. market, due to its excellent features and rising profitability.
As per findings by Apptopia, Cash App was the most downloaded payment app between April and May 2020, with a 20.1% increase in U.S. downloads, reaching around 4 million within that time frame. Additionally, usage increased, with roughly 250 million sessions in April—the second-highest number among payment applications. As people looked for alternatives to in-person banking and provided financial support to friends and family, the pandemic caused a shift toward digital transactions, which is what is responsible for this surge.
According to Block, Cash App’s parent company, in a manner that many financial institutions have not been able to, Cash App has expanded access to the financial system and enabled a wide range of consumers to send, spend, save, invest, and comprehend their money more effectively. Its goal is to “redefine the world’s relationship with money by making it more relatable, instantly available, and universally accessible,” which is in line with this. Block believes Cash App can keep improving the economy both today and in the future.
However, Cash App has also faced challenges. Recently, under Jack Dorsey’s leadership, Block agreed to a $175 million settlement with the CFPB, which included a $55 million fine and up to $120 million in reimbursements for Cash App users. Allegations of widespread fraud and insufficient customer service on the platform were addressed in the settlement. The CFPB charged Cash App with facilitating fraud, sending users to banks, and neglecting to look into questionable transactions. Cash App accounted for over half of Block’s 2023 gross profit, with over 56 million accounts. In addition, after 48 state regulators joined together, Block paid an $80 million fine for money laundering violations.
The press release stated:
“While we strongly disagree with the CFPB’s mischaracterizations, we made the decision to settle this matter in the interest of putting it behind us and focusing on what’s best for our customers and our business,”
Methodology
For this article, we reviewed multiple reliable websites and videos that discuss stocks available on Cash App. From there, we formed an initial list of the 20 Best Cash App Stocks To Buy According to Hedge Funds. From the resultant dataset, we chose 10 stocks with the highest number of hedge fund investors, using Insider Monkey’s database of 900 hedge funds in Q3 2024 to gauge hedge fund sentiment for stocks.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points. (see more details here)
A consumer in a cafe paying for goods using a mobile payment app.
PayPal Holdings Inc. (NASDAQ:PYPL)
Number of Hedge Fund Holders: 90
One of the Best Cash App Stocks, PayPal Holdings, Inc. (NASDAQ:PYPL), which specializes in online transactions, was split off from eBay in 2015. It provides businesses and people with electronic payment solutions. The company had 426 million active accounts by the end of 2023. The business is also the owner of the Venmo peer-to-peer payment network.
PayPal Holdings, Inc. (NASDAQ:PYPL) was able to establish and preserve a competitive edge by building a network of merchants and customers early in the development of e-commerce. In the past, the firm’s expansion has been pushed by the continuous transition to electronic payments and the emergence of e-commerce, which the coronavirus pandemic momentarily worsened. More recently, though, the company has faced significant challenges as the benefits of the pandemic have reversed and new competitors have emerged. In an effort to ease the strain on top-line growth, management has put more of an emphasis on cost reduction and product innovation, with the ultimate goal of moving toward more profitable growth.
The company’s revenue increased by 5.78% YoY in Q3 2024. PayPal Holdings, Inc. (NASDAQ:PYPL) showed steady growth and revenue, with revenue increasing 6% on a currency-neutral basis to $7.8 billion and total payment volume increasing 9% to $423 billion. Strong generation of free cash flow helped non-GAAP earnings per share jump 22% year over year. Innovative product launches were presented by the company, such as new mobile checkout experiences that increased conversion rates by up to 400 basis points for one-time checkout and 100 basis points for vaulted checkout. Furthermore, over one thousand retailers have embraced the Fastlane feature, which has improved customer experiences.
Venmo reported strong growth in Q3 of 2024, as evidenced by a 30% increase in monthly active debit card accounts and a 20% increase in monthly active Pay with Venmo customers. For the second consecutive quarter, Braintree recorded significant growth in transaction margin dollars, revealing its sustained excellent performance. The PayPal Everywhere campaign garnered great traction, with over 1 million new debit card users, indicating excellent adoption rates and the company’s expanding ecosystem.
Artisan Value Fund stated the following regarding PayPal Holdings, Inc. (NASDAQ:PYPL) in its Q3 2024 investor letter:
“Our top contributor was PayPal Holdings, Inc. (NASDAQ:PYPL), a financial technology company that enables digital and mobile payments between consumers and merchants. PayPal was a recent new purchase added to the portfolio in Q2. Better growth in payment volumes and transaction margins during PayPal’s latest quarter offered evidence that the new management team’s efforts are gaining traction. Notably, payment service provider Braintree returned to providing positive transaction margin, branded checkout contributed strongly to payment volume growth, and monetization at Venmo showed progress. Post-COVID, PayPal’s shares had been pressured by intensifying competition, the threat of which was seemingly exacerbated by prior management missteps. Shares traded for under 14X next year’s expected earnings at the time of our initial purchase. This was an attractive entry point to purchase a stake in a business with above-average—and improving—unit economics, a strong balance sheet and consistent free cash flow. Competent new management is already leaning on the company’s strong financial position to maximize the value of these assets.”
Overall, PYPL ranks 4th on our list of best cash app stocks to buy according to hedge funds. While we acknowledge the potential for PYPL to grow, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than PYPL but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.